What is quantitative easing?

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Quantitative easing is when the United States Federal Reserve buys bonds from its member banks. The Federal Reserve does this by purchasing mortgage-backed securities and U.S. Treasury notes and then issues credit to the banks' reserves to purchase the bonds.

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The Fed does this in order to create economic growth and lower interest rates. Quantitative easing increases the supply of money and keeps the value of the U.S. dollar down, which attracts foreign investors to U.S. stock investing. However, the lower interest rates allow banks to make more loans, thus encouraging consumption both by individuals who are able to have more credit and businesses that receive money they need to expand.